November 2022 Compliance News

Expanded Determination Letter Program for 403(b) Plans

The U.S. Treasury Department and the Internal Revenue Service (IRS) have released Revenue Procedure 2022-40, which expands the retirement plan determination letter program for individually designed 403(b) plans. There are no changes to qualified pre-approved plans at this time, but future guidance is expected.

Changes

Beginning on or after June 1, 2023, 403(b) individually designed plans may now apply for a determination letter under the following circumstances:

Initial plan determination letter: Plan sponsors may submit determination letter applications for initial plan determination. The initial application period will be staggered over three years each June 1st based on the plan sponsor’s employer identification number (EIN).
- Initial plan determination filing is allowed, even if the plan was originally a pre-approved plan that filed for determination under Form 5307 but was later restated to an individually designed plan.
Plan merger: Qualified plans may submit a determination letter application if the following requirements are met:
- The date of the plan merger occurs no later than the last day of the first plan year that begins after the plan year that includes the date of a corporate merger, acquisition, or other similar business transaction, and
- A determination letter application for the merged plan is submitted within the submission period. The submission period is from the date of the plan merger through the last day of the first plan year that begins after the plan merger.
Qualification at plan termination: Plan sponsors can request a determination letter in connection with plan termination if it is filed no later than the later of the following (additional time limits may apply once substantially all assets have been distributed):
- One year from the effective date of the termination, or
- One year from the date on which the action terminating the plan is taken.

Other circumstances may be considered; however, for 2023, the IRS will only accept applications for the reasons listed above.

When the IRS conducts its review of qualification and section 403(b) requirements, they will generally consider items that have (as well as have not) been included in a Required Amendments List on or before the last day of the second calendar year preceding the year in which the determination letter is submitted.

The subject matter in this communication is educational only and provided with the understanding that Principal^® is not rendering legal, accounting, investment or tax advice. You should consult with appropriate counsel, financial professionals or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.

Insurance products and plan administrative services provided through Principal Life Insurance Company^®, a member of the Principal Financial Group^®, Des Moines, IA 50392.

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